SEBON Releases Margin Trading Facility Directives, 2082

 

The Securities Board of Nepal (SEBON) has introduced the “Margin Trading Facility Directives, 2082” under Section 118 of the Securities Act, 2063. This comprehensive framework replaces the decade-old Margin Trading Directives, 2074 and aims to bring greater transparency, risk control, and investor protection to leveraged trading in Nepal’s capital market.

For the first time, stock brokers can systematically offer margin trading facilities (दफ्लिंग करोबार सुविधा) to eligible investors, allowing them to buy listed shares by paying only a portion of the value upfront while borrowing the rest from the broker. The new directives strike a balance between expanding market liquidity and preventing excessive leverage.

Who Can Offer Margin Trading?

Only licensed securities brokers meeting strict eligibility criteria can provide this facility:

• Minimum paid-up capital: Rs 20 crore
• Must be a clearing member of the Central Depository
• Must hold necessary approvals from Nepal Stock Exchange (NEPSE)

Eligible Shares for Margin Trading

Only shares of stable, well-established companies qualify:

• Minimum 25 lakh publicly listed shares (excluding promoter/locked shares)
• Net worth equal to or higher than paid-up capital
• Profitable in at least two of the last three financial years
• At least two years have passed since IPO listing

Key Margin Requirements

Requirement	Percentage	Details
Initial Margin	Minimum 30%	Investor must deposit at least 30% of the market value upfront
Maintenance Margin	Minimum 20%	Ongoing minimum equity the investor must maintain
Leverage	Up to 3.33 times	Investor can control shares worth ~3.33 times their own margin

• Daily Mark-to-Market valuation is mandatory.
• Brokers may demand higher margins based on client risk profile, market volatility, or specific stock risk.

Margin Call & Forced Sale Mechanism

• If maintenance margin falls below 20%, the broker must issue a Margin Call.
• If the investor fails to top up within the stipulated time, the broker can sell the pledged shares to recover the loan.
• In extreme cases, brokers may accept shares from “A”, “B”, or “H” categories (at 60% of market value) as collateral.

Funding Sources & Exposure Limits for Brokers

Brokers may fund margin loans from:

• Own capital
• Bank borrowings
• Unsecured loans from shareholders or directors (subject to Companies Act compliance)

Strict Limits:

• Total borrowing by broker ≤ 4.5 times its net worth
• Total margin facility ≤ 5 times its net worth
• Exposure to any single client ≤ 10% of the broker’s total margin facility

Operational & Reporting Requirements

• Separate Margin Trading Account and Margin Trading Demat Account required
• Brokers must obtain Power of Attorney from clients for enforcement (optional but recommended)
• Daily reporting to NEPSE in prescribed format
• Monthly summary to SEBON
• Annual statutory audit of margin accounts within three months of fiscal year-end
• Mandatory client agreement covering margins, charges, margin call process, fees, and risk disclosures

What This Means for Market Participants

For Investors

• Greater access to leveraged positions with clear rules
• Higher discipline required due to daily mark-to-market and strict maintenance margin
• Improved transparency and protection against arbitrary broker actions

For Brokers

• New revenue stream (interest + fees) but with significant capital and compliance burden
• Stronger risk management systems mandatory
• Only well-capitalised, professionally managed brokers can participate

For the Market

• Expected increase in trading volume and liquidity
• Reduced systemic risk through regulated leverage
• More professional and transparent leveraged trading ecosystem

Our Advisory to Clients

As a leading accounting and advisory firm, we view these directives as a major positive step toward a mature capital market. However, they also introduce complex compliance, risk management, and financial reporting obligations.

The new Margin Trading Directives, 2082 mark Nepal’s capital market moving closer to international standards while safeguarding investor interests.

Click Here to review/download original file.

Read More

SEBON Issues New Guidelines for Independent Review of Financial Statements for IPOs – 2082

 

The Securities Board of Nepal (SEBON) has released the “Guidelines for Review of Financial Statements Submitted for Preliminary Public Offering, 2082” under the special powers granted by Section 90 of the Securities Act, 2063.

This landmark guideline mandates an independent review (पुनरावलोकन वा जाँचबुझ) of financial statements by a qualified accounting expert in specific high-risk cases before a company can proceed with an IPO. The objective is crystal clear: enhance transparency, protect public investors, and ensure that only companies with credible and fairly presented financials are allowed to raise money from the capital market.

For promoters, CFOs, and companies planning to list on the Nepal Stock Exchange, these guidelines introduce a new layer of due diligence that will significantly raise the bar for IPO readiness.

When Must an Independent Review Be Conducted?

SEBON has defined clear, objective triggers. A review is required in the following situations:

1. General Criteria (applicable to all companies)

Last financial year (or interim) statements will be reviewed if:

• Trade receivables (or similar) exceed 75% of total sales revenue.
• Unpaid government taxes, duties or liabilities exist and, after adjustment, the company fails to meet IPO eligibility thresholds (net worth, profitability, etc.).
• Net worth falls to 50% or less of paid-up capital after adjusting contingent liabilities.

Last three financial years will be reviewed if:

• Related-party transactions with connected persons exceed 30% of fixed/business assets.
• Related-party transactions exceed 30% of average sales/expenses (government transactions excluded).
• Accounting policy changes or estimate revisions have boosted net worth/profit to meet IPO criteria.
• Auditor’s report contains qualifications that, if adjusted, would make the company ineligible.
• Restatements or prior-period adjustments have been made to qualify for IPO.

Combined or red-flag cases (last year + three years + interim) apply where multiple triggers exist, or where there are complaints, regulatory directives, suspected financial irregularities, or public events likely to materially affect the company’s financial position.

2. Sector-Specific Additional Triggers

• Manufacturing & Processing: Gross profit margin fluctuation >30% vs. previous two-year average; significant variance in interest/finance costs.
• Hotels & Tourism: Same margin and interest cost triggers + high receivables.
• Hydropower & Energy Infrastructure: Related-party spend >30% of project cost; IRR fluctuations under IFRIC-12; investment in other projects during main project construction.
• Investment Companies: High related-party exposure; investments outside permitted sectors; frequent changes in investment accounting policy.

3. Other Cases

• Public complaints or regulatory/government directives requiring scrutiny.
• Any other situation SEBON deems necessary.

Who Can Perform the Review? (Strict Eligibility)

Only highly experienced and independent professionals are allowed:

• Chartered Accountant with minimum 10 years experience, OR
• CA who has passed SEBON-recognised Forensic Accounting and Fraud Detection (FAED) examination + minimum 5 years experience.
• Must be a partner in a CA firm.
• No audit or consultancy relationship with the company in the last three years.
• Must submit a conflict-of-interest declaration confirming no relationship with the company or the issue manager.

What Does the Independent Expert Actually Review?

The scope is comprehensive and forensic in nature. The expert must:

• Verify related-party transactions at arm’s-length pricing.
• Assess reasonableness of accounting policy changes and estimate revisions.
• Test recoverability of receivables and adequacy of provisions.
• Evaluate going-concern assumptions and contingent liabilities.
• Scrutinize unusual or extraordinary income/expenses.
• Validate share-premium valuation methodology and assumptions.
• Analyse impact of auditor qualifications.
• Review compliance with all applicable laws (including Securities laws).
• Assess the reasonableness of projected financial statements against historical performance, industry conditions, and management capability.
• Provide adjusted financial statements along with a formal opinion.

The final report, including any required restatements, must be submitted directly to SEBON.

Role of the Issue Manager (Merchant Banker)

• Conduct initial due diligence and flag whether review is required.
• Recommend three eligible experts to SEBON.
• SEBON selects and appoints one.
• Company bears all costs of the review.
• Report must be submitted within 30 days (extendable by 10 days with justification).

Critical Disqualification

Companies whose latest audited financial statements carry an Adverse Opinion or Disclaimer Opinion are not eligible to apply for IPO.

What This Means for Your Company

These guidelines are a strong positive signal for the Nepali capital market. They:

• Reduce the risk of “window dressing” or aggressive accounting.
• Protect retail investors from over-valued or questionable IPOs.
• Increase credibility of companies that successfully clear the review process.
• Make IPO preparation more rigorous — but also more professional

Click here to review/download original file.

Read More

New Code of Ethics for Inland Revenue Department Officials: A Major Step Toward Transparent, Efficient & Taxpayer-Friendly Administration

 

New Code of Ethics for Inland Revenue Department Officials: Approved by the Director General on 2082/12/25 (effective immediately);

Nepal’s Inland Revenue Department (IRD) has released a comprehensive Code of Ethics 2082 for all its officers and staff working in the Department and its subordinate tax offices. This is the first major update since the 2074 Code and marks a significant upgrade in governance standards for Nepal’s tax administration.

For accounting firms, taxpayers, and businesses, this document is excellent news. It sets clear, enforceable standards of conduct that directly translate into faster service, greater transparency, and reduced opportunities for harassment or corruption.

Core Values That Will Govern Every Tax Official

The Code explicitly requires every IRD employee to uphold the following principles:

• Integrity & Honesty – Strict adherence to the law without any twisting or selective application.
• Impartiality & Non-Discrimination – No favoritism based on political affiliation, caste, gender, religion, or personal connections.
• Transparency & Accountability – Decisions must be objective, fact-based, and documented.
• Professionalism & Service Orientation – Courteous, prompt, and helpful behavior toward all taxpayers.
• Duty Consciousness – Timely completion of assigned responsibilities without delay or negligence.

Key Conduct Rules That Directly Benefit Taxpayers

1. Faster & Smoother Service Delivery Officials must provide services “quickly, easily, and effectively.” Unnecessary delays or “keeping files pending” are now explicitly prohibited.
2. Zero Tolerance for Gifts, Favors & Hospitality Accepting any gift, donation, or hospitality from taxpayers or their representatives is strictly banned.
3. Strict Confidentiality Taxpayer information must remain protected. Unauthorized disclosure is a serious breach.
4. No Private Meetings or Side Deals Unauthorized meetings with taxpayers or acting as their representative/agent is prohibited.
5. Proper Use of Digital Systems Greater emphasis on digital platforms, e-filing, and e-evidence. Officials are encouraged to maximize digital tools for quicker processing.
6. Political Neutrality Officials cannot participate in political activities or allow political influence to affect their duties.
7. Clear Dress Code & Identification Officials must wear the prescribed uniform/identification badge during office hours, making it easier for taxpayers to identify them.
8. Prompt Reporting of Problems Any difficulty in performing duties must be immediately reported to superiors instead of passing the burden to taxpayers.

What Acts Are Now Explicitly Prohibited?

The Code lists specific actions that will be treated as violations, including:

• Delaying or harassing taxpayers
• Demanding or accepting bribes (directly or indirectly)
• Misusing official position or government property
• Sharing confidential taxpayer data
• Engaging in political activities
• Working for any private organization or taking other employment without permission

How This Helps Your Business

As an accounting firm serving hundreds of clients across Nepal, we see this Code as a powerful tool for compliance and peace of mind:

• Reduced Compliance Risk – Clear rules mean fewer arbitrary demands or “gray-area” interpretations.
• Faster Refunds & Approvals – Timeliness is now a formal duty.
• Stronger Recourse – If any official violates the Code, taxpayers now have a clear ethical framework to reference when escalating complaints.
• Improved Taxpayer Confidence – A professional and ethical tax administration encourages voluntary compliance and long-term trust.

Our Advice to Clients

While the Code raises the bar for tax officials, we recommend clients continue best practices:

• Always communicate through official channels (IRD portal, official email, or recorded letters).
• Keep complete documentation of every interaction.
• Report any unethical behavior promptly to the concerned office head or the Department’s monitoring mechanism.
• Leverage digital services wherever possible – the Code actively encourages this.

Click here to review/download original file.

Read More

Applicability of CSR and Its Accounting

The Industrial Enterprises Act, 2076 has mandated CSR for Big & Medium industries along with small/cottage industries exceeding annual turnover of NRs 15 crores. 

Click here to download the summary prepared on CSR and its accounting. 

Read More